Tax Tips for Home-Based Businesses

by Kathy Burns-Millyard, Demand Media

File business receipts for easy access at tax time.

file folders image by Kathy Burns from Fotolia.com

Running a business gives you tax advantages that aren't available as an employee, and these tax advantages apply just as readily to home-based businesses as they do to brick and mortar stores. Learning how to take advantage of tax deductions for home-based businesses takes time and can be confusing in the beginning, but general tips are a good way to get started. Keep in mind that getting advice from a tax professional or Certified Public Accountant is a wise investment for the long-term.

Keep Detailed Records

Keep all business-related records for income and expense. If you purchase printer paper for your office while out shopping for school supplies with your children, highlight that office expense on the receipt and file it to deduct from taxes at the end of the year. When you meet a client for lunch, NOLO advises you to make notes on the back of the receipts, "On the receipt or bill, always make a note of the specific business purpose ... " Even if you track your business expenses in a computer program or expense ledger, always file copies of the receipts as proof of money spent for business purposes.

Separate Business Expenses

Whenever possible, keep all business expenses separate from personal expenses. This practice makes it much easier to gather all business-related receipts at the end of the year and ensure you have not missed any valid deductions. Consider keeping a credit card and bank account that are used solely for business related purchases, and create separate accounts for business-specific services, such as your telephone or cell phone, so you'll receive dedicated account statements and bills

Follow Rules

Familiarize yourself with the Internal Revenue Service rules and regulations for home-based businesses. If you designate a specific area of your home as an office and use it solely for business purposes for example, you can deduct a portion of your home's mortgage interest, utilities and insurance costs as business expenses. The designated area does not have to be a full and separate room in your home, nor does it have to be inside your primary living space. A dedicated corner of the living room or an outdoor shed can both qualify as areas for the home office tax deduction.

Likewise, if you take a trip with your family and conduct business while on that trip, you cannot deduct the entire cost of the trip as a business expense, but you can deduct the portion of the trip that was dedicated to conducting business. Knowing and following each rule allows you to maximize your tax deductions without getting into trouble.

Spend More Money

Small businesses pay taxes on income earned after expenses. This means that the more money you spend for legitimate business purposes, the less money you have to pay taxes on. You can reduce your taxes by spending more money on business advertising, employees or insurance among other things. Consult with a professional tax adviser to determine the best ways to increase your business spending and reduce the overall amount of taxes due.

About the Author

Kathy Burns-Millyard has been a web designer, developer, Internet consultant, photographer and prolific professional writer since 1997. Specializing in business, technology, environmental and health topics, her work has appeared in "Wireless Week" magazine, "Entrepreneur" magazine, "Computer User" magazine and in hundreds of publications online.

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